Steps of the Loan Process
Before starting to look at homes, potential homebuyers that need mortgage financing should meet or speak with a mortgage broker/loan officer to review their employment histories, verifiable recurring monthly incomes, credit histories/credit scores, debt-to-income ratios and documentable liquid assets available to cover the closing costs and down payment. The mortgage broker/loan officer will then submit this information to the automated underwriting systems of Fannie Mae or Freddie Mac for a conditional pre-approval. The mortgage broker/loan officer can then provide hypothetical purchase prices and loan amounts for the potential homebuyers to review.
Upon completing these steps of the loan process, the potential homebuyers will then know what price range they can afford, their estimated monthly payment, estimated closing costs/prepaid items/escrows and total funds needed at the time of closing. Mortgage brokers/loan officers often run numerous scenarios for potential homebuyers when they start to look at various homes. Experienced real estate agents typically will not show homes to a potential homebuyer, that needs mortgage financing, until they know that they have been prequalified or preapproved by a mortgage broker/loan officer.
At this stage, the real estate agent will request a prequalification letter or preapproval letter from the mortgage/loan officer to submit with any offers that are made. A conditional letter of prequalification states that the mortgage broker/loan officer has used the verbal information that the potential homebuyer has provided along with the credit report to determine if the potential homebuyer qualifies. A conditional letter of preapproval states that the mortgage broker/loan officer has actually reviewed the potential homebuyer’s pay stubs, W-2’s, tax returns, bank statements and any other documentation that is required to make an underwriting decision.
If a mortgage broker/loan officer is not willing to send out estimates of loan terms, monthly payments, closing costs/prepaid items/escrows and funds needed to close, then the potential homebuyer should consider finding another mortgage broker/loan officer to work with.
After a contract has been accepted and executed by both the sellers and buyers, the homebuyers will typically have five days to make a formal application with their mortgage broker/lender. The application can be taken in person, over the phone, by fax, mail or by the Internet.
After the application has been formally taken, the mortgage broker/loan officer will submit the borrower’s information along with the information on the subject property back into the automated underwriting systems of either Fannie Mae or Freddie Mac. Upon receiving a conditional approval the mortgage broker/loan officer will register the loan, lock-in or float the interest rate per the borrower’s instructions and then generate the Lender’s Estimate of loan terms and the initial disclosures. The borrowers can then sign the Lender’s Estimate and initial disclosures via DocuSign using the Internet or meet in person to review and sign the documents with their mortgage broker/loan officer.
After the Lender’s Estimate and initial disclosures have been executed, the mortgage broker/loan officer will provide the borrowers with a checklist of supporting documents that will be needed to successfully process their loan request. The mortgage broker/loan officer will also collect at that time the debit or credit card information from the borrowers so that the appraisal can be requested.
At that time of the loan process, the loan request is typically submitted to a mortgage processor who requests the appraisal, the lender’s title commitment and related title documents from the settlement agent that the seller has chosen. The appraisal is typically not requested until the borrowers have requested, received, reviewed and approved the home inspection of the subject property. The processor also reviews the checklist of supporting documents that the loan officer has requested and monitors for timely return of these documents.
The processor then submits the documents that have been received to the underwriter for a conditional approval. Upon receipt of the conditional approval the processor contacts the borrowers to review any documentation that may be requested by the underwriter or has not been submitted by the borrowers. Upon receipt of the appraisal a copy is emailed or mailed to the borrowers for their review and written acknowledgment of receipt. This is required by federal law. The underwriter must review the appraisal and give his or her approval. The processor also forwards the title commitment and related title documents to the lender for review and approval.
At this point, the borrower should be obtaining quotes for hazard/windstorm insurance and possibly flood insurance if the subject property is located in a federally designated flood hazard zone. We typically obtain at least three quotes for our borrowers, however, by state law it is the borrowers right to choose the insurance agent/company they would like to use. Many real estate agents also obtain quotes for their clients to review. Upon the borrowers choice of insurance agent the processor sends the lender’s information that the agent will need to write the insurance policy. The agent then provides proof of insurance coverage(s) to the processor, who then forwards it to the underwriter for approval.
A survey of the subject property showing the location of the home on the subject property is also requested during this time period by either the borrowers, the real estate agent, the settlement agent or the mortgage broker/lender. We typically order the survey for our borrowers, though it is strictly their choice of the surveyor they would like to use. The completed survey is submitted to both the settlement agent and the lender for approval.
Upon obtaining a “Clear to Close” status the loan request is then forwarded to the closing department where the closing instructions and documents are prepared and forwarded to the settlement agent.